The Palmer Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $140 a night.
Operating costs are as follows:
Salaries $7,000 per month
Utilities $1,000 per month
Depreciation $900 per month
Maintenance $2,804 per month
Maid service $38 per room
Other costs $74 per room
1. Determine the inn's break-even point in number of rented rooms per month.
2. Determine the inn's break-even point in dollars.
The break-even point is the level of output which the total sales are equal to the total costs incurred. Also, the break-even point is where there is no net income earned by the company.
Answer and Explanation: 1
Let us compute the total fixed costs. The items that are part of fixed costs are:
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fromChapter 5 / Lesson 28
See how to calculate break-even point (in units and dollars). See the variables of the break-even point formula and examples. Understand the purpose of break-even analysis.